NPCI may have set off a revolution in pre-approved UPI loans

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₹2,000. (100 basis points make up one percentage point). Interchange refers to the fee paid on every transaction to the bank offering credit.

A merchant pays a merchant discount rate or fee to the acquiring bank facilitating every transaction. MDR typically includes interchange and other miscellaneous fees. It takes care of the risk and interest for the credit extended by the bank.

The consumer does not pay any fee in this transaction. A credit line on UPI is a pre-sanctioned loan for the customer using a bank account, which is linked to an individual’s UPI account. It will work like a credit card.

But the interchange fees is less than 1.8% charged on credit cards, making it more attractive for merchants. According to NPCI, the new interchange fee will help increase the issuance and adoption of credit lines on UPI, which will help UPI merchants get incremental business. “This is a paradigm shift, a major shift away from what the world has been used to till now … the bank is literally in your pocket," said Sivaram Kowta, president of Zeta India, which provides next-gen banking technology to financial institutions globally.

“Till now, for loans, you pretty much still had to go to the bank. Even the BNPL players offer a single interest rate, and you have to take that and use it. But now multiple credit products, including an auto loan, a consumer durable loan or a general loan can all be accessed via the same credit line." According to Zeta, credit line-based transactions on UPI are expected to touch $1 trillion by 2030.